Auto industry cutbacks have Midwest bracing for worst

Auto industry cutbacks have Midwest bracing for worst

General Motors and Ford’s recent announcements that they will cut back production signals anxious trepidation for a region resigned to economic slumps. The anxiety is well-placed. In the early 1970’s and 1980’s, recession was commonplace in the industry rich Midwestern US. It happened again early in 2002, and the area is still struggling to right itself. Indeed, the 2000 census proved that some of the area’s largest cities are also the nation’s fastest shrinking. GM and Ford are looking increasingly like punch drunk fighters on the ropes. In the first five months of 2005 alone, GM’s market share dropped from 27% to 25.4% while Ford’s went from 18.8% to 17.9%. By way of comparison, Asian automakers further cemented their place in the US market share with an increase from 34.3% to 36.5%. In fact, Chrysler was the only domestic automaker to see a share increase, moving up 0.7% to reach 14%. GM and Ford’s only recourse seems to make cuts, and, at the expense of workers, cuts they are making. In recent days GM made the announcement that they will close several plants and trim 25’000 jobs from their payroll by 2008. GM intends to slash third-quarter production by 100’000 vehicles, Ford, 17’000. In the first part of the year both companies cut production by half. The result has had a profound effect on the automaker’s suppliers, with several notables – Meridian Automotive Systems and Collins and Aikman – declaring Chapter 11 bankruptcy in recent months. Furthermore, Ford was forced to take a bullet for its ailing parts supplier Visteon by electing to assume control of the company’s 24 North American plants. Moreover, such cuts have repercussions further down the supply chain. GM, for example, uses 98% domestically produced steel in its products. The production cuts mean that northward Canadian steelmakers are grappling with how to cope with burgeoning inventories and a steep decline in business. GM’s decision to close plants is not one it is resorting to on a whim. The company has been ridiculed for its poor capacity utilization – last of all major carmakers – with some plants seeing levels as low as 8% and an overall level of 86% in 2004. To make matters worse, GM is desperately trying to rid itself of its exorbitant health benefits package, which cost the company over $5 billion in 2004. That works out to be about $1500 for every vehicle that rolled off its assembly line. The news already has rust belt states like Ohio, where GM is its sixth-largest employer, scrambling to come up with contingency plans. When the bottom fell out of the industry in the early 1980s, unemployment hit 16% in Michigan. Few, if any, want to return to those times. It is not surprising that speculation is rampant about which plants could be on GM’s list. GM is being tight-lipped about which of those it will be, and that is making for some very nervous people.